05 May 2005
Key Points:
The aspects of the decision dealing with the question of design compliance are relatively unsurprising given that the Principal's participation in the design process included a "without prejudice" entitlement to comment upon the design.
In the recent case of State of Tasmania v Leighton Contractors Pty Ltd (No 3) [2004] TASSC 132, the Supreme Court of Tasmania was called on to consider a number of issues, including whether the Design Documentation prepared by the contractor complied with the Project Deed entered into by the parties.
The proceedings related to a design, construct and maintain contract for a new section of the Bass Highway. The new section comprised two sections called the Westbury and Hagley Bypasses, respectively. The core of the dispute relates to the effect of a Direction given by the Principal's Representative in relation to a section of the Hagley Bypass, namely that the section be constructed by Leighton "in cut" as opposed to "on fill" and whether this Direction constituted a "Change" under the provisions of the Project Deed, thereby entitling Leighton to additional payment and an extension of time.
The design was not compliant
The area surrounding Hagley House was particularly sensitive environmentally and, according to the State, the Project Deed therefore paid particular attention to minimising the potentially detrimental impacts of the new highway on the landscape. The Project Deed expressly required Leighton to comply with "the Environmental Documents" namely, the Development Proposal and Environmental Management Plan (DPEMP), that formed part of the Project Deed and "all relevant Law" (which the State submitted included compliance with Planning Permits issued for the Project and Environmental Protection Notices issued by the Department of Primary Industries, Water & Environment).
The DPEMP referred to "minimising visual impacts" in the vicinity of Hagley House and Mill and included "concept designs" showing the road in this area to be "in cut" in the vicinity of Hagley House, though there was no engineering information provided from which the depth of cut could be calculated with precision from the concept designs.
Drawings submitted by Leighton as part of its tender showed the road in front of Hagley House to be "in cut" 0.795 metres below the Natural Surface Level (NSL).
Leighton was required to prepare Design Documentation for the Project Works and the Design Documentation was required to comply with the Project Deed. Clause 4.2 of the Project Deed provided a detailed process for the preparation of Design Documentation by Leighton and its submission to the Principal. In summary, the provision effectively required Leighton to submit its design at the 15 percent and 85 percent stage of each discrete design element in the Project Works to the Principal. The Principal had a "without prejudice" entitlement to comment on the design and was entitled to reject Design Documentation as non-compliant with the Project Deed. If however the Principal directed any changes to the Design Documentation submitted by Leighton that complied with the requirements of the Project Deed, then any such direction constituted a "Change" for which Leighton was entitled to time and money.
When Leighton submitted its 15 percent design, it showed the road in the vicinity of Hagley House being on fill 0.85 metres above NSL as opposed to 0.795 metres below NSL (ie. in cut) as shown in tender drawings. The 85 percent design showed the road to be on fill 1.2 metres above NSL (the level that was also shown in the final Design Documentation).
Neither the Principal or the Principal's Representative raised any issue in relation to the design being non-compliant with the Deed during the preparation of Design Documentation. The alteration from the tender drawings was never discussed until shortly after commencing construction in the area of Hagley House, when local residents raised concerns that Leighton appeared to be constructing the road on fill as opposed to in cut. After much discussion between all interested parties, the Principal instructed Leighton to proceed with design and construction of the road at 1.5 metres below NSL (ie. "in cut").
Leighton claimed an entitlement to the extra costs and time of complying with the Direction on the basis that its final design was compliant with the Project Deed and the direction constituted a Change. Chief Justice Cox rejected this. He held that in order to meet the requirements of the Deed which included a requirement to comply with the DPEMP, Leighton had to include in its design an in-cut road alignment near Hagley House.
Leighton argued in the alternative that its concept design road alignment of 0.795m below NSL was compliant with the Deed and that it was entitled to a Variation in respect of the difference between the directed 1.5m in-cut and the concept design 0.795m in-cut. Chief Justice Cox found that the concept design did not represent the original scope of works. He found (based on expert evidence), that an in-cut design of 0.795m did not comply with the Project Deed, but an in-cut of 1m was sufficient to make the Design comply. Accordingly he held that Leighton was entitled to the additional cost (and time) resulting from the requirement to design and construct the road to an alignment of 1.5m rather than 1m below NSL (as 1m would make the Design compliant).
Leighton also pleaded that the Principal was estopped from asserting that the Leighton design was non-compliant, by reason of its involvement in the design process. This argument was rejected.
No decision was made on the quantum of the extension of time or delay costs. The trial was limited to the issue of liability, and the trial of the quantum will be separately heard if the parties cannot reach agreement on the valuation.
Conclusion
While the aspects of the decision dealing with the question of design compliance are relatively unsurprising given that the Principal's participation in the design process included a "without prejudice" entitlement to comment upon the design, Chief Justice Cox seems to have based his rejection of the estoppel argument (in part at least) upon a factual finding that the Principal's Representative had no knowledge that the "on fill" designs had made their way into the 15 percent and 85 percent design stages. Had Chief Justice Cox made a different factual finding, then the estoppel argument may have been an interesting one.
For further information, please contact Sergio Capelli.
